Younger customers are feeling the pinch, but one generation is trying to get ahead

Younger generations are being forced to cut discretionary spending more than those in older age groups, figures from the National Australia Bank show, as renters and recent home buyers feel the pinch from inflation and the steep rise in interest rates.

New NAB data to be published on Monday shows customers aged under 50 have typically reduced spending more compared to those older than 50, with cuts in areas including eating out, entertainment and food delivery services.

Younger people, renters and relatively new entrants to the mortgage market are among the hardest hit by cost of living pressures.Credit: Getty

The bank also said there were signs younger people were becoming more budget-conscious and putting some of the money saved into savings accounts or paying down debt. It highlighted a surge in savings accounts opened by Gen Z customers.

The data is the latest sign of how surging living costs are prompting a change in spending behaviour from households – one reason why banks are yet to see a major rise in bad loans, despite the pressures on many customers.

NAB personal banking executive Paul Riley said the reduction in spending had been a trend for the past 12 to 18 months, but that data from the bank’s latest consumer sentiment survey of 2000 Australians showed different spending and saving patterns between demographics.

“It’s an overall trend across generations, but some of the categories of spending slightly fluctuate based on where each segment of customers spends their money.”

While those aged under 50 were generally more likely to be cutting spending, the data showed far fewer consumers over 65 were cutting or reducing their spending in most areas relative to other age groups, except when it came to car journeys and charitable giving.

Riley said spending for essentials increased slightly, but that it was mostly a reflection of overall inflation, with most savings made in discretionary spending. “People are prioritising where they want to spend and really focusing on that savings aspect,” he said.

During the latest quarter, 54 per cent of consumers cut back on eating out, 50 per cent reduced their spending on micro treats such as coffee and snacks and 47 per cent spent less on entertainment including cinema and theatre attendance.

Australians under 30 most commonly cut back on eating out ($124), food delivery services ($96) and micro treats ($73).

“Rather than going out for an expensive dinner with friends, younger Australians are confidently opting to stay in and choose to put that amount into a high-interest savings account or pay down debt,” Riley said.

Those in the 18-to-29 age group were most likely to put the money into savings or offset accounts, while the 30-to-49 group was most inclined to pay down their mortgage. Meanwhile, the over-65 group was most likely to use savings for day-to-day living expenses.

“There’s no doubt that younger people are more likely to put their money into savings accounts rather than term deposits because they want the flexibility of being able to access that money at any time they want,” Riley said, noting the number of high-interest savings accounts opened by Gen Z customers at NAB had grown 24 per cent over the year.

Commonwealth Bank’s head of Australian economics Gareth Aird said consumer spending was softening from an aggregate perspective, but that there were differences between age groups.

“Drilling down by age cohort, there’s been a lot more weakness from younger people aged under 40,” he said. “Spending growth from older people has been relatively buoyant, but the data is picking up pressure points in the economy among relatively new entrants to the mortgage market and renters.”

Aird said older consumers had seen a boost to their income on the back of strong growth in deposits amid higher interest rates, while younger people were cutting back more in their discretionary spending to meet higher mortgage repayments, rents and price increases in essential items.

NAB chief executive Ross McEwan on Friday also said more customers were making spending cuts in response to the rising cost of living. The bank said customers were broadly in good shape.

Riley said the move towards more conscious saving by Gen Z reflected trends on social media platforms such as TikTok.

“They’re talking about it a lot more with friends, and I think that trend is different to other generations where money was always a bit of [a] taboo topic,” he said.

While the banks have come under criticism in last year’s competition watchdog inquiry, which found large proportions of their customers were not receiving bonus interest rates often used by banks to attract consumers, Riley said more than 80 per cent of NAB’s customers on the reward savers bonus accounts were receiving their bonus rates.

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